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Physicians’ Guide to Buying Online Businesses to Diversify Income

Author Mushfiq

While physicians tend to earn a very healthy paycheck, it’s also a career path with many expenses, drawbacks, or burnout. Even for those physicians who love their work, finances can be tricky, and it doesn’t change the fact that you can only bill the hours that you are working. In addition to that, online businesses are a great way to stoke your creativity like writing, video, and creating physical products that people love.

Online businesses have the potential to scale and get a doctor’s leverage on their time as opposed to other physician side gigs like consulting or expert-witness work. seeing patients in person. Getting a second source of income is a great way to pay off major student loans or other debts, bring some breathing room to the budget, and secure a more stable financial present and future. Buying an online business is one way for a physician to diversify their income.

Many of us look at real estate, which is a business that we buy at 20X profit (assuming a 5% cap rate) whereas high-quality online businesses trade at much more attractive multiples such as 3-5x profit generating 25-30% yield.

Let’s dive into this guide for buying online businesses for physicians and why this can be a great way to get that diversified income.

 

Why Should Physicians Buy Online Businesses?

There are several good reasons why physicians should consider buying an online business. The first is diversifying income.

 

 

Online Businesses Diversify Income

Buying an online business provides an income source that doesn’t come directly from working at a clinic, hospital, or practice.

This helps avoid any conflict of interest, burnout and gives doctors an income unrelated to their main practice.

Having a diversified income acts as a safety net during hard times or if something happens with the main job that results in a reduction or complete loss of income.

 

Passive Income Becomes an Option

Another main reason to look towards buying an online business is that it separates income from direct hours worked. A side business like woodworking or building custom computers still requires hours of labor to get paid. These are also great, but they are just not the same as an internet-scale business.

Many online businesses can be set up with minimum work to be more or less passive income. This means the side income comes in regardless of hours worked. You can outsource the monthly maintenance work on hiring platforms like Upwork or Fiverr for a reasonable amount to make it truly passive or let them handle maintenance while you work to grow it. The ability to hire anywhere in the world makes it substantially easier than running a clinic. Anyone with one too many MA turnover would know the difficulty of retaining talent for a brick-and-mortar business.

The passive or near-passive income options that online businesses offer can be incredibly appealing and provide an excellent option for a low-stress, low-effort source of additional income.

 

Online Businesses Are Valuable Assets

An online business is an asset just like a stone and mortar business is. Not only can that online business make you money on a monthly basis from ads, affiliate deals, sponsorships, or sales, but the business itself is an asset that has its own equity value.

This is important to keep in mind because buying an online business and making even modest monthly income gains can result in a huge valuation change if you sell it for a profit.

 

Valuations & Historical Returns

In general, an online business will be valued between 30x to 50x monthly net profits, with the majority of them falling in the 32x to 40x range.

Depending on what type of broker is being used, they might discuss expected valuations off of yearly net profits which is often 2.0x to 4.0x. Make sure to understand which metric is being used before agreeing on numbers and a sale price.

This also shows the potential profit that can be made from growing and selling an online business. One that makes $1,000 a month profit is going to be valued at $40,000 on the high end.

If the net profit is increased by a modest $500 a month up to $1,500, that increases valuation to $60,000, a $20,000 jump.

What an online business can return varies wildly based on the type of business (and current demand for that particular type/style of online business), the niche it is in, and the historical stability of that income.

 

Pros of Online Businesses

  • Passive income

  • Can acquire multiple passive or near-passive income businesses over time
  • Small improvements in revenue can lead to major profits on resale
  • Diversification of income
  • Creates income not directly tied to hours worked

 

Cons of Online Businesses

  • Google updates or online business market changes can be unpredictable
  • Good standard operating procedures and maintenance actions need to be in place to help keep that income secure
  • Purchasing and transferring an online business requires technical expertise or hiring trusted individuals who have that expertise
  • There is a learning curve, and getting the most out of buying online businesses does mean learning new skills to get the most out of your investment

 

What to Consider Before Buying an Online Business

There are several important things to consider before a physician should buy an online business.

Just a few of the questions to ask include:

  • Do you want a fully passive income or do you plan to grow the business?
  • How many skills are you willing to learn?
  • Is this a long-term hold or a grow-and-sell opportunity?
  • Are you looking for something in a hobby or area of interest, or something completely unrelated?
  • What is your budget?
  • Are you going to do the due diligence yourself or outsource to a third-party firm?

Having the answers to these questions goes a long way toward what type of online business is going to be the best match for you and your personal financial goals.

 

Types of Online Businesses

There are several different types of online businesses commonly put up for sale, and it’s important to understand what each type is, how they work, and the effort expected to maintain earnings before making a purchase.

There are a few main types of online businesses. While some will use more than one monetization method or strategy, most will fall primarily into one of the following business types.

 

Content Sites

Content websites focus on providing heavy informational content on a specific topic or niche. They are most often monetized through a combination of display ads and affiliate links to relevant items.

The business model behind content sites can be oversimplified to more traffic = more money, and it’s been very effective for many bloggers for well over 15 years.

Well-developed content sites are very popular and have relatively easy maintenance once well-established. Due diligence on content sites is a bit simpler than other models.

 

E-commerce Businesses

E-commerce sites directly sell products to users. Amazon.com is the largest example of this in the world, but many much smaller sites can make significant revenue by selling products. These can be directly via software like Shopify, in tandem with platforms like Etsy, or be dropshipping-based.

These businesses can often do massive amounts of sales and revenue but generally require a bit more work, upkeep, and knowledge to keep things running smoothly. Due diligence on eCommerce businesses requires more hands-on analysis to review suppliers, costs, and warehousing, among other factors. Customer support can also be an important part of running an E-commerce business successfully.

 

Software as a Service Businesses

Software as a Service (SaaS) business. These are businesses that developed a plug-in, app, or other software program that is sold to businesses, bloggers, or individuals for revenue. Buying one of these businesses involves acquiring ownership of that software in addition to the customers.

These businesses have a very high ceiling, especially if you or someone you hire has the technical expertise to continue improving the existing software or create new related software offerings that complement the needs of the current user base well.

This style of online business tends to require the most work and technical skills, but the potential rewards can be huge. SaaS due diligence in the closing process can also be very cumbersome, so be aware of that.

The valuations tend to be higher for SaaS given the predictability of the business model. By simply understanding contract value, the lifetime of a customer, and the churn rate, one can quickly analyze the company’s revenue.

 

Online Course

Online courses are often found on content sites, as well, but this is a focus where a specialized course, often consisting of dozens or even hundreds of lessons and videos, is a big ticket product for sale and may even include a members-only area, forums, and support.

This is a very labor-intensive setup and will not be completely passive even when bought, but does come with a premium-priced product and course that is already set for continued sale and support.

 

How to Buy an Online Business

Buying an online business is a process, but thousands of transactions occur annually. Having someone on hand who is experienced or tech-savvy is always a good idea, as transferring an online business from one account to another does take some skill.

That said, there are many people qualified to help, and going through moderated brokers can help add a layer of technical assistance and security that makes the process both safer and easier.

 

Popular Online Business Brokers

There are many reputable online business brokers out there, but a few names will consistently emerge as some of the largest, best, or most beginner-friendly. For physicians who are buying an online business for the first time, going through a broker that provides some level of moderation and support is highly advised.

 

Empire Flippers

Empire Flippers is the world’s largest moderated online business broker and does some serious due diligence on listed websites/online businesses before listing them. This is a great place to look for online businesses, although they do focus on higher value businesses so this will likely require mid to high five-figure investment for even the cheaper options listed here.

 

Quiet Light

Quiet Light is a top broker in this space. Majority of their business for sale tend to be eCommerce, Amazon FBA, and/or content websites. The price ranges tends to be low 6-7 figures. They are a trusted source for deal flow in the industry.

 

FE International

FE International is an older broker for online business that is moderated and tends to focus on online businesses that are valued at six figures and above. This is another place to look for online businesses that have been vetted by a professional broker before listing.

 

Flippa

Flippa proudly boasts as being the largest online marketplace in the world for online businesses, but it’s important to note they are unmoderated, so it’s 100% up to the buyer to do all due diligence before agreeing to a deal, and up to them to work out a purchase contract.Generally not recommended for pure beginners, but it is another place to find potential online businesses for sale.

 

Importance of Escrow

Whether buying through an unregulated platform like Flippa or a heavily moderated platform like Empire Flippers, you should always use escrow. If the seller doesn’t want to use escrow, walk away from the deal.

The escrow needs to be set up so money isn’t released until the files are transferred to you as the buyer, your tech guy has it set up, and any needed support from them is given. Once that ownership is transferred, then and only then should the money be released.

This helps to protect both sides of the deal by going through a trusted escrow service.

 

Final Thoughts

Buying an online business is a great way for doctors to create another stream of income, one unrelated to their hours at work or medicine in general.

That diversification acts as a great safety net for both short-term and long-term financial goals, and can even be mostly passive. Very few other income streams offer that potential, making an online business purchase an outstanding option.

 

About the Author

Mushfiq is a prolific investor who buys, grows and sells online businesses. He has had 218+ business exits to date, and several have resulted in 6-figure exits. He is the founder of WebAcquisition.com, an M&A agency that helps buyers perform due diligence on online business acquisitions.

 

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